insurance

Wharton study: Private insurers could complement federal flood insurance

Posted 12/20/11

PHILADELPHIA – Private flood insurance has the potential to replace the National Flood Insurance Program in some locales, according to a just-released study conducted by the Wharton Risk Management and Decision Processes Center at the Wharton School of the University of Pennsylvania.

The study concluded after examining the likelihood of future catastrophic flooding in two flood-prone areas in Texas that the NFIP often over- or under-charges customers for flood insurance, creating an opportunity for private insurers to jump in and take the business.

Despite certain barriers to private insurers entering this market, said Erwann Michel-Kerjan, Risk Center managing director and co-author of the study, if certain criteria were met “this could significantly increase the number of residents with proper coverage.”

All told, 2011 was the most costly year for natural disasters across the globe, at a total cost of $350 billion. In fact, the spate of floods across the U.S. has left the NFIP is $17.8 billion in debt, leading to the research about private insurance taking its place.

In addition to studying the cost of flood insurance, the study looked at various flood mitigation measures and concluded that elevating residences is the most cost-effective tool to combat flood damage for new construction.

To download the full report, Wharton.upenn.edu/riskcenter.

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